“The fact that the Governing Council has not opted for an explicit reference to the average inflation rate in its new inflation target should be viewed in a positive light. This would have been seen as a clear signal to allow inflation of well above two per cent for years to come. Nevertheless, the new target paves the way for higher inflation rates. With inflation below two per cent now being considered just as bad as inflation above two per cent, it will be even easier for the ECB Governing Council to justify a continuation of ultra-loose monetary policy and bond purchases in the years ahead. The explicit statement that the target may have to be moderately exceeded during a transitional phase also further weakens the binding nature of the target as an upper limit.
This strategic decision comes at an unfortunate time. Just at the moment when some euro states have become fully dependent on the ECB’s bond purchases due to the crisis, the ECB Governing Council is lowering its long-term ambition for limiting inflation. This can be interpreted as a signal that, even in its strategic decisions, the ECB is anxious to ensure that high debt levels are secured. The stronger inclusion of housing costs, on the other hand, is to be entirely welcomed. The housing sector in Europe has seen inflationary processes that strongly affect consumers but had not yet been sufficiently taken into account in measuring inflation.”